Broking firm Motilal Oswal expects the earnings recovery to strengthen further next financial year and is bullish on large-caps over the midcaps.

Todya's government decision to lower its additional borrowing target to Rs 20,000 crore instead of the previously planned Rs 50,000 crore has eased bond yields and the good start to the earnings season have served as a catalyst to the markets, Motilal Oswal Institutional equities research head Gautam Duggad said here today.

"We believe earnings have bottomed out and expect the earnings recovery to strengthen further in 2018-19," he said, adding "this keeps us cautiously optimistic on markets notwithstanding the near-term rich valuations after a strong 28 per cent rally in the trailing 12 months," he said.

Duggad also said he prefers large-caps over the midcaps which had returned much more than the former in the past year.

Meanwhile, continuing its growth strategy, Motilal Oswal AMC said its assets under management crossed Rs 16,000 crore with a full 122 per cent growth in 2017.

"We have five schemes and our AUM has touched Rs 16,105 crore by December," its managing director and chief executive Aashish Somaiyaa said.

On the equity outlook, its senior vice- president and fund manager Gautam Sinha Roy said, "from a longer-term perspective, good stocks are still the best asset class. So even if they are expensive it does not mean that you should stay away from them completely. You should be selective".

"For the next three years, we may get healthy returns from the market, but we need to have moderate expectations. If earnings disappoint, then we will see correction," he added.

The fund is cautious on IT, pharma, metals, telecom and infra stocks, but is betting big on general insurers.

"We are bullish on the insurance sector, which is very nascent. We are getting quite a few general insurance listings now...I believe there is very good scope of finding long-term returns in this space," Roy added.